FRANCIA v.
IAC o The circumstances of the case do not satisfy the following requirements
June 28, 1988 Gutierrez, Jr., J. | Distinguished from debts
Digester: Venturanza, Maria
SUMMARY: A part of Francia’s property was expropriated by the government for the
amount of P4,116. At the same, Francia failed to pay real estate taxes on the same
property from 1963-1977. The property was eventually sold at public auction to satisfy a
tax delinquency of P2,400. In this petition, Francia assails the validity of the public
auction, mainly arguing that his obligation to pay tax delinquency was set-off by the
amount which the government was indebted to him. The Court dismissed the petition,
saying that there can be no offsetting of taxes against the claims that the taxpayer may
have against the government.
DOCTRINE: Internal revenue taxes cannot be the subject of compensation. The
reason being that government and taxpayer are not mutually creditors and debtors of
each other under Article 1278 of the Civil Code, and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.
FACTS:
 Engracio Francia is the registered owner of a residential lot (328 sq. m.) and a two-
story house built upon it situated at Pasay City. A portion (125 sq. m.) of the
property was expropriated by the Republic of the Philippines for P4,116.00.
 Since 1963 up to 1977, Francia failed to pay his real estate taxes. Thus, his property
was sold at public auction by the City Treasurer of Pasay City pursuant to Section
73 of P.D. No. 464 (Real Property Tax Code) in order to satisfy a tax delinquency
of P2,400.00. Ho Fernandez was the highest bidder for the property.
 Francia was not present during the auction sale since he was in Iligan City at that
time helping his uncle ship bananas. Thereafter, he received a notice of hearing of a
case filed by Fernandez, seeking the cancellation of the current TCT and issuance
of a new one. The auction sale and final bill of sale were both annotated at the
back.
 Francia filed a complaint to annul the auction sale.
 Trial court dismissed the complaint and ordered a new TCT be issued in favor of
Hernandez. IAC affirmed the decision of the lower court in toto.
RULING: Petition dismissed.
[Topic] Whether Francia’s obligation to pay tax delinquency was set-off by the
amount which the government is indebted to the former – NO.
 Francia contends that his tax delinquency of P2,400.00 has been extinguished by
legal compensation. He claims that the government owed him P4,116.00 when a
portion of his land was expropriated. Hence, his tax obligation had been set-off by
operation of law.
 There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other,
are extinguished (Art. 1278, Civil Code).
provided by Article 1279: (1) That each one of the obligors be bound
principally and that he be at the same time a principal creditor of the other…
(3) that the two debts be due…
 The Court has consistently ruled that there can be no offsetting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse
to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.
 Republic v. Mambulao Lumber Co.: … The reason on which the general rule is based,
is that taxes are not in the nature of contracts between the party and party but grow
out of duty to, and are the positive acts of the government to the making and
enforcing of which, the personal consent of individual taxpayers is not required.
 Corders v. Gonda: ... internal revenue taxes cannot be the subject of compensation.
The reason being that government and taxpayer are not mutually creditors and
debtors of each other under Article 1278 of the Civil Code, and a "claim for taxes is
not such a debt, demand, contract or judgment as is allowed to be set-off.”
Whether Francia was not properly and duly notified that an auction sale of his
property was to take place – No.
 The Court agrees with Francia’s claim that Fernandez, as the purchaser at the
auction sale, has the burden of proof to show that there was compliance with the
prescribed requisite for a tax sale.
 However, even if the burden of proof lies with Fernandez, Francia cannot deny
that he did received the notice for the auction sale. As admitted in his testimony,
Francia received the notification for the auction sale. It was negligence on his part
to ignore such notice.
Whether the price of the property paid by Hernandez was grossly inadequate,
making the auction sale void – NO.
 Alleged gross inadequacy of price is not material when the law gives the owner the
right to redeem as when a sale is made at public auction, upon the theory that the
lesser the price, the easier it is for the owner to effect redemption.
NOTES:
Other bases (only discussed in passing) why the Court ruled against Francia:
1. The tax was due to the city government while the expropriation was effected
by the national government.
2. The amount of P4,116.00 paid by the national government for the 125 sq. m.
portion of his lot was deposited with the Philippine National Bank long
before the sale at public auction of his remaining property.
3. Francia, as admitted in his testimony, received notice of the deposit.
4. Francia had one year within which to redeem his property although, as well be
shown later, he claimed that he pocketed the notice of the auction sale
without reading it.